UK Gas Prices Skyrocket Amid US-Iran Tensions
Gas prices in the UK have surged to unprecedented levels, nearly doubling in just a week (https://www.cityam.com/gas-prices-surge-as-qatari-plant-hit-by-iran-strikes/), as the conflict between the US and Iran intensifies. The wholesale gas price, which determines the cost of natural gas for energy suppliers before it reaches households and businesses, has skyrocketed by a staggering 93% this week alone.
The price of gas briefly soared to 151 pence per therm, a level not seen since February 2023, before settling at around 148 pence. This dramatic increase follows a 32% jump on Tuesday, on top of a 50% rise on Monday.
Economists at Investec predict that higher energy prices will significantly boost inflation. They estimate that the current oil price, if sustained, would add 0.2% to headline inflation due to increased petrol prices. A sustained 40% rise in natural gas prices could further elevate inflation by approximately 0.7% through higher household utility bills.
Analysts at Stifel caution that any prolonged increase in wholesale gas prices could lead to a substantial adjustment in Ofgem's price cap. A tripling of gas prices could result in the cap jumping to nearly £2,500 annually, a level not seen since Russia's invasion of Ukraine.
The initial gas price surge was triggered by a Qatari state energy company's decision to halt production of liquified natural gas (LNG) following Iranian 'military attacks'. Qatar, the world's largest LNG export plant, supplies approximately 12-14% of Europe's LNG imports, making the situation particularly dire for the continent.
Meanwhile, oil prices continued their upward trend, rising by 3.2% on Tuesday morning to $80 per barrel (https://www.cityam.com/oil-price-surge-pushes-investors-to-bet-against-interest-rate-cut/). However, Richard Hunter, head of markets at interactive investor, notes that while oil price spikes often follow conflicts, the duration and escalation of the current tensions are more concerning than the immediate outlook, as many countries have accumulated stockpiles to sustain them through the coming months.
